General Val Questions

Question 1

Why is it important to take photographs when on inspection?

Answer 1

To refer back to
For audit purposes
For compliance purposes with the Red Book (VPS 2)

Question 2

Give me some instances where a Property might not be suitable for loan security?

Answer 2

• A property with cladding issues
• Extensive Japanese knotweed
• If compulsory purchase order placed.
• something bad happened in the property such as a murder which is publicly known

Question 3

What is net effective rent? How is it calculated?

Answer 3

The headline rent minus any incentives

Rent (Term - Rent free) / full term

Question 4

What is the all risk yield?

Answer 4

The remunerative rate of interest used in valuation of fully let property let at market rent reflecting all the prospects and risks attached to a particular investment.

Question 5

What is a discounted cash flow?

Answer 5

A growth explicit method of valuation

Used for a number of valuations where the projected cash flows are explicitly estimated over a finite period.

Question 6

How do you carry out a DCF?

Answer 6

• project estimated cash flow is set out over an assumed investment holding period.
• plus an exit value at the end of the period usually arrived at using an ARY
• cash flow is then discounted back at the present day at a discount rate reflecting risk level.

Question 7

How do you calculate the IRR?

Answer 7

1. Input current market value as a negative cash flow.
2. Input project rents over holding period as a positive value.
3. Discount cash flow at discount rate
4. Value is the sun of the completed discounted cash flow to provide the NPV

Question 8

When would you use the profit method of valuation?

Answer 8

Valuations of specialist trading properties

Where the value of property depends upon the profitability of its business

Question 9

What are the 4 basis of value as defined by VPS 4?

Answer 9

1. Market Value
2. Market Rent
3. Fair Value
4. Investment Value/worth

Question 10

True Equivalent Yield

Answer 10

Rent paid quarterly in advance

Question 11

Nominal Equivalent yield

Answer 11

Rent paid annually in arrears

Question 12

Leading case on margin of error

Answer 12

Singer & Friedlander Ltd v J.D. Wood

Held that the usual margin of error can be varied, and can be narrower for relatively straightforward valuation cases and wider for more complex cases.

Question 13

Standard margin of error in commercial properties

Answer 13

+/-10%

Question 14

What is hope value?

Answer 14

The value arising from any expectation that future circumstances affecting the property may change

Eg future prospect of securing planning permission for development land

Question 15

What is marriage value?

Answer 15

Created by a merger of interests - can be physical or tenurial.

Typical negotiation is to split the marriage value created 50:50